State Farm Mutual Automobile Insurance Co. v. Campbell

Facts

In 1981, Curtis Campbell (D) decided to pass six vans traveling ahead on a two-lane highway. Todd Ospital was driving a small car approaching from the opposite direction. To avoid a head-on collision Ospital swerved onto the shoulder, lost control of his automobile, and collided with a vehicle driven by Robert G. Slusher. Ospital was killed, and Slusher was rendered permanently disabled. Ds escaped unscathed. Ps sued in wrongful death and tort. D insisted he was not at fault. Investigators and witnesses proved that D’s unsafe pass had indeed caused the crash. State Farm (D1), nonetheless decided to contest liability and declined offers to settle the claims for the policy limit of $50,000 ($25,000 per claimant). D1 ignored the advice of one of its own investigators.  D1 also assured Ds that 'their assets were safe, that they had no liability for the accident and that they did not need to procure separate counsel.  The jury found D was 100 percent at fault, and a judgment was returned for $185,849. D1 refused to cover the $135,849 in excess liability. D1 also refused to post a supersedeas bond to allow D to appeal the judgment against him. D obtained his own counsel to appeal the verdict. Eventually, Slusher, Ospital, and Ds reached an agreement whereby Slusher and Ospital agreed not to seek satisfaction of their claims against Ds. In exchange, Ds agreed to pursue a bad faith action against D1and to be represented by Slusher's and Ospital's attorneys. Slusher and Ospital would receive 90 percent of any verdict against D1. The Utah Supreme Court denied D's appeal in the wrongful death and tort actions. D1 then paid the entire judgment, including the amounts in excess of the policy limits. Ds filed a complaint against D1 alleging bad faith, fraud, and intentional infliction of emotional distress. D1 got a summary judgment because it had paid the excess verdict, but that ruling was reversed on appeal. The jury determined that D1's decision not to settle was unreasonable because there was a substantial likelihood of an excess verdict. The Supreme Court then decided BMW v. Gore. Based on that decision, D1 again moved for the exclusion of evidence of dissimilar out-of-state conduct. D1's motion was denied. D1 was found liable for fraud and intentional infliction of emotional distress, as well as compensatory and punitive damages. Ds introduced evidence that D1's decision to take the case to trial was a result of a national scheme to meet corporate fiscal goals by capping payouts on claims company wide. The trial court allowed Ds to introduce extensive expert testimony regarding fraudulent practices by D1 in its nation-wide operations. The jury awarded the Ds $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court reduced to $1 million and $25 million respectively. Both parties appealed. The Utah Supreme Court sought to apply the three guideposts in Gore. It reinstated the $145 million punitive damages award. Relying in large part on the extensive evidence concerning the PP&R policy, the court concluded D1's conduct was reprehensible. The court also relied upon D1's 'massive wealth' and on testimony indicating that 'D1's actions, because of their clandestine nature, will be punished at most in one out of every 50,000 cases as a matter of statistical probability,' and concluded that the ratio between punitive and compensatory damages was not unwarranted. Finally, the court noted that the punitive damages award was not excessive when compared to various civil and criminal penalties State Farm could have faced, including $10,000 for each act of fraud, the suspension of its license to conduct business in Utah, the disgorgement of profits, and imprisonment.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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